As the economy heads into second half 2002, demand for industrial fasteners continues, in the words of one manufacturer, "to bob along at the bottom" of the business cycle.

Overall demand for fasteners fell about 40% in 2001, says Steve Payne, vice president, sales and marketing, Safety Socket Screw, Chicago. "I've been in this business for 18 years and gone through a couple of glitches, but people working in the fastener industry for 35 or 40 years tell me they've never seen anything so devastating...Business is starting to pick up somewhat. The industry will have two good weeks, then all of a sudden we are right back where we started." Payne doesn't see any real positive change until fourth quarter.

"While business has improved some over the past year, right now I'd say it's flattened out," adds Jerry DeMars, vice president and general manager, Nucor Fastener, St. Joe, Ind. "Some of the businesses we serve are up. Some are down. Two that come to mind are big trucks and construction. The big trucks business is improving. Construction is flat."

Scott Gornall, sales and marketing manager, PEM Fastening Systems, Danboro, Pa., also sees some improvement in industrial fasteners. His company, however, sells its products mainly to the electronics industry. "In relation to a year and a half ago, overall demand is way down. As for electronics, it's extremely slow."

For purchasers, this means the buyers' market for fasteners continues. Supply is ample. Deliveries are quick. Prices are low. There is, however, little in the way of new product introductions because some companies have made cuts in research and development spending.

Industrial fastener manufacturers are keeping a close eye on the steel market. New tariffs on imported steel could mean higher prices on steel grades used to manufacture fasteners. These hikes in turn could translate into higher tags for fasteners. Fastener manufacturers also suggest buyers watch inventory levels. If the economy makes a quick turnaround, plants that made deep cuts in personnel may find it challenging meeting a heavy influx of new orders.

For now, it looks like increases in fastener demand will be slow and steady. PEM's Gornall, for one, says his company "is projecting a 5-6% increase per quarter for the next few quarters. That's very slow."

Longer term, market researchers at The Freedonia Group, Cleveland, forecast demand for industrial fasteners from U.S. facilities to rise 4.1% annually through 2005 to $12.2 billion, a deceleration compared to the mid/latter 1990s. The slowdown, Freedonia says, "reflects primarily cyclical factors, in particular moderating growth in both fastener-containing OEM (original equipment manufacturer) products demand and new construction activity."

While an industry pulling itself out of the doldrums generally means competitive pricing and plentiful supply for corporate buyers, fastener manufacturers are monitoring raw material (namely steel) tags and availability.

Some of the bigger players in the fastener industry are working to combat any future price increases from their steel suppliers. They are pooling their plants' purchases to leverage their buying power and entering into long-term agreements. Some are holding reverse auctions to help lower prices.

"Fastener pricing is competitive, and will continue to be for the rest of the year," says PEM's Gornall. "If steel goes up, so do our prices. But, we have multiple suppliers so they all have to stay competitive."

"If steel continues to go up, I think our prices will have to follow suit," says Nucor's DeMars. "Still, we don't want to run out and pump prices if steel goes up for 60 days and then comes back down because the economy isn't quite as strong as people thought."

Results of PURCHASING's Transaction Price survey show prices for cold-rolled steel sheet (one grade used to manufacture fasteners) rising to $400/ton in the second quarter from $333/ton in the first quarter. Prices then are expected to moderate a bit, to $372/ton by the end of the year.

"Supply levels of fasteners are weakened," says Payne of Safety Socket Screw. "But, if demand starts taking off, how long is it going to take the steel mills that have had layoffs to deliver the raw material? Already, we are starting to see a bit of that, an increase of about two weeks in our raw materials requirements."

As Gornall of PEM sees it, supply shouldn't be a problem for any manufacturer right now. "There's a glut of supply. But, everybody has had to cut personnel to get down to the level of their current business. If orders should pick up quickly, everybody could have a problem with leadtimes."

"I just don't see it unless inventories have gotten so low that people panic and want to build inventories back up to where they were before the economy started to slide," says DeMars of Nucor.

Results of PURCHASING Magazine's Leadtime survey show deliveries of specialty fasteners running at about four weeks. Seventy-nine percent of panelists say they receive delivery within five weeks.